Oil pulls back on inventory expectations, risk reduction

Oil Is Not On a Preset Course

Oil prices (NYMEX:CLU13) are beginning to pull back as traders expect a rebound in inventory. The market is also seeing a reduction in geo-political risk as the Egyptian stock market continues to rally since the removal of Egyptian President Morsi. Products are also pulling back as refiners start to come back on track with oil supplies still 6.5% above the five-year average despite the massive drop. While Ben Bernanke is still talking about tapering, he made it clear that his plans on tapering are not on a preset course. Oil as well is not on a preset course but at some point soon we should see oil drop about $10. That will be data, weather and refinery dependent of course.

We did get some decent news on the refinery front in yesterday’s session. Products broke after Bloomberg News reported “Philadelphia Energy Solutions has returned an alkylation unit to normal operations at its refinery, according to a person familiar with the situation. The unit, which had been on circulation since a July 12 malfunctioned, was reheated and its rates increased last week, said the person, who asked not to be identified because the information isn’t public. Alkylation units process intermediate products from catalytic crackers to produce high-octane gasoline blendstock.” Bloomberg also updated on Valero Energy Corp., which they say will keep the fluid catalytic cracker shut at its Port Arthur, Texas, refinery at least another week for repairs, according to a person familiar with the unit’s operation. The repairs involve a reactor, a fractionator and a compressor associated with the catalytic cracker, said the person, who asked not to be identified because he isn’t authorized to speak for the refinery. The 75,000-barrel-a-day unit was put on circulation on July 9, a condition in which the unit is idling and ready for a quick restart, and shut down July 12 after a valve malfunction. The Port Arthur refinery has a capacity of 310,000 barrels a day, according to data compiled by Bloomberg. With a time frame on Port Arthur, the products markets can start looking forward to the market enjoying our nation’s expanded refinery capacity.

Oil supplies should also increase after the recent sharp drop. Imports of oil were way down in part because of floods in Alberta, Canada, the worst in 100 years that shut down pipelines. UPI reported that Enbridge Energy said last week most of its pipeline systems tied to oil operations has returned to service, but at lower operating capacity.

Enbridge closed its Wood Buffalo pipeline system in northeast Alberta in June in response to a spill from its Line 37 pipeline from Fort McMurray. The NEB said Wednesday it was "actively monitoring the impacts of flooding" to ensure pipelines under its jurisdiction were operating safely. "Companies with pipelines in areas affected by flooding continue to monitor their systems and take action where appropriate," the regulator said. "There have been reported impacts from the flood involving exposed pipelines caused by erosion or rerouting of waterways." About 750 barrels of oil spilled from Line 37. Enbridge said no potable water wells were affected by the release, though some of the oil spilled into a small creek and a lake.”

Bloomberg News reports that “Suncor Energy Inc. (SU) and other Canadian oil stocks have risen twice as much as global competitors after the country’s crude rose to a one-year high on optimism that pipeline bottlenecks are easing. Heavy-oil producers Suncor, Imperial Oil Ltd. (IMO), Canadian Natural Resources Ltd., Cenovus Energy Inc. (CVE) and Baytex Energy Corp. (BTE) have returned an average of 16% in the past three months as the benchmark price of Canadian heavy oil soared to as high as $91.54; more than double its low in December. An index of global oil stocks rose 8% in the same period. The resurgence in Canadian oil prices and stocks comes as pipeline bottlenecks that cut profits earlier this year have been eased by a combination of new U.S. Gulf Coast pipelines, increased rail transportation and supply shortages in Canada. “

So with Canadian oil coming back and refiners down last week, oil may get a nice rebound in supply. While it may be too early to worry about, the National Hurricane Center is reporting a low pressure system a couple of hundred miles South-Southeast of the Cape Verdes Island has a 40% chance of becoming a tropical cyclone.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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